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Hungary to outgrow debt, not rely on special taxes, says state secretary - paper

Hungary could finance a stable and steady reduction of state debt from economic growth, and the government does not plan to rely on extra taxes for a protracted period, state secretary of the Prime Minister's Office, Mihály Varga said in an interview with daily Népszabadság on Monday.

"It is not unrealistic to target Hungary's debt falling under 50% of GDP (the cap set in the new constitution to come into force from the start of 2012) after 2017", Varga, a finance minister under the former Fidesz government, said.

An average growth rate of 3%, no budget deficit and no sharp rise in interest rates could in itself halve the debt ratio, but the full approval of measures outlined in the country's structural reform plan are necessary for the debt reduction to be a steady one, he said.

Hungary does not intend to rely on extra sources to cut state debt for a protracted period, he said. The government does not wish to collect revenue from extraordinary taxes for a protracted period, he added.

Varga did not see a special tax on drug makers likely, when asked about a recent remark by Prime Minister Orbán on the unjustifiably large profits in the segment. He said the problem rather stems from an inefficient drug subsidy system which encourages the excess use of pharmaceuticals. Hungary cannot afford spending 1.5% of GDP on drug subsidies, he said citing the example of the cheaper and more efficient system of Sweden.

Varga said planned legislation on state debt reduction, to be approved by a two-thirds majority in the autumn, would contain the general framework necessary to reduce debt rather than specific targets.

Prime Minister Viktor Orbán said last week the government is drawing up legislation that will lay down a timetable for bringing state debt under 50% of GDP.

Orbán announced last week Hungary cut the country's state debt, in a single step, by more than HUF 1,340 billion reducing it as a percentage of GDP to 77% from 81%.

The reduction happened through the withdrawal of government securities the state received as part of a transfer by private pension funds of assets of former members. Hungarian members of private pension funds had until the end of January to opt out of a move, along with their retirement savings, back to the state pension pillar. About 97% of members returned to the state pillar, bringing some HUF 2,946 billion in assets with them.